I work for a hedge fund. I am not a body language guru. I don't watch to see when you fold your legs and scratch your ear. I don’t run a website that thinks 9/11 was an inside job. I don’t know what Illuminati are. But even if I did, I don’t think they secretly control the world. And I don’t think aliens live among us (although that would explain a lot of the comments on Reddit). However, if I did run a conspiracy theory website or sell my body language insights, I’d pretty damn amazing at it.
I’ve been on the buy-side for a long time. During this time, I’ve had countless CEOs, CFOs, and other investors, lie to me. I’ve had executives sound bullish about a quarter, only to miss expectations. I’ve had CFOs sound confident about guidance, only to lower it two weeks later. I’ve had other investors pitch a stock to me, only to find out they’re in the process of unwinding the position. As a result, I’ve developed a healthy dose of skepticism for anything and everything somebody says.
In this business, skepticism is good. When you make a contrarian call and it turns out to be right, you can make a ton of money. However, sometimes I wonder if I’ve taken it too far, trying to connect dots that don’t exist. Management teams lie all the time. So instead of focusing on what they say in meetings, I focus on other things, like body language and mannerisms. A CEO I meet is normally cheery, but she’s more downbeat this time. Most likely, she had trouble sleeping last night. Maybe she argued with her husband. But I can’t help but wonder if it’s a sign that numbers are going to bad?
Similarly, I’ve noticed a CFO has recently lost weight. He’s probably taking better care of himself. But I can’t help but wonder if he’s sick. The CEO normally wears a red tie. But today he’s wearing a blue one. What does that mean? Is he trying to send me a signal???
My conspiracy theorist views don’t just apply to people. When a company cancels out of a conference, they always say it’s due to scheduling conflicts. But I wonder if it’s because they’re going to announce a deal, or pre-announce atrocious results. When a company shifts the date of earnings, especially when it coincides with the date of a competitor, my first thought is M&A.
If you don’t follow the markets closely, you might think I’m crazy. But these things can really move the share price. A CEO abruptly resigning could push a stock down 10% or more. M&A can lift a stock over 50%. And I can point to real examples where a seemingly inconsequential change was the result of an important event.
So if you can see real dots and correctly tie them together, you can make great investment calls. This is why I wear a foil hat at work – to prevent others from stealing my ideas.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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